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China Power will not take 'no' for an answer

Andy Chen

Firm still eager to supply local market despite being snubbed by HK duopoly

China Power International Holding (CPI) yesterday reiterated its desire to break into the electricity market, despite being rebuffed by Hong Kong's two power companies which say they have no intention of sharing their grid capacities.

CPI president and general manager Li Xiaolin said a proposal had been submitted to the government.

'We're still at a very preliminary stage on plans to supply electricity to Hong Kong,' Ms Li told reporters after a meeting with shareholders. 'We've expressed our interest to the government and will continue our research on this plan.'

It was the first time Ms Li, the daughter of former premier Li Peng, said publicly that CPI was interested in Hong Kong's electricity market.

Ms Li stressed that CPI's listed flagship, China Power International Development, which operates power stations in Guangdong, could provide a reliable energy supply to Hong Kong.

She said CPI, which also has a 10 per cent stake in the Daya Bay nuclear power plant, was prepared to negotiate with Hong Kong's two electricity suppliers on co-operation.

Her comments came after CLP Holdings and Hongkong Electric Holdings this week publicly opposed any changes to the current operating environment, saying it was premature to open the market. Hongkong Electric said yesterday it was against 'experimentation' in the electricity market.

Managing director Tso Kai-sum went so far as to warn that more operators would result in a highly interconnected network, and the cascading effect caused by the failure of any equipment could ultimately lead to 'a total system blackout'.

Mr Tso said a deregulated market might also lead to under-investment by electricity producers.

'We are in no position to open the market. The Chinese market is not ready to have interconnection with us or trading electricity with Hong Kong,' he said.

But Mr Tso refused to say whether the company would be prepared to relax grid control when the mainland had sufficient reliable supply to export to the city.

When asked if Hongkong Electric had been approached by Vertex Communications & Technology Group, the company that has teamed up with CPI, Mr Tso said there had been no contact so far, adding: 'I hope they don't come to us.'

He said entering the Hong Kong island market would involve greater risks because of higher grid costs.

He also defended tariff levels, saying they were reasonable under the present regulatory regime. On Thursday, CLP Holdings managing director Andrew Brandler said Hong Kong's electricity market should remain closed for at least a decade to allow it to integrate with southern China.

'We are not in favour of opening the grid to allow third parties to come in,' Mr Brandler said.

CLP has supplied power to Kowloon, the New Territories and Lantau Island for the past 40 years under the scheme of control, which guarantees it a fixed rate of return ranging between 13.5 and 15 per cent of net assets.

The same rate is guaranteed to Hongkong Electric, which serves Hong Kong and Lamma islands. The return ranks among the highest of any power company in the world.

CPI, one of the mainland's five-largest national independent power producers, teamed up with Vertex to form a 70-30 joint venture that aims to become a local electricity supplier.

The government is considering options for when the current arrangement governing the power provider duopoly ends in 2008. So far, at least 200 submissions have been received. Consultation closes today, but a second round will be launched by the end of the year.

Vertex chairman Steven Poon Kwok-lim said yesterday: 'With a bit of luck, it is possible to supply electricity to customers [in Hong Kong] this year.'

Mr Poon, a former CLP Power general manager, added that Vertex and CPI were making good progress on their plans to supply electricity to Hong Kong. He declined to elaborate further.

He said the joint venture would operate with CPI generating electricity from its mainland power plants, while Vertex would woo customers in Hong Kong.

Vertex would concentrate on developing its power business and there were plans to spin off its media business.

Mr Poon said the spin-off would take about a year and the location for the new listing had not been decided.

Additional reporting by Cheung Chi-fai

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